Hey Biz-Buyers,

Welcome to this week’s Boring Business Brief, where we share some of the best insights, tips, and stories from our private biz-buying community.

Today we’ve got buyers’ thoughts on passion vs. profit, a quick biz-buying math lesson, and insights from navigating one member’s deal dynamics.

But first… We have something cool to share.

Something we’ve never done before…

This Saturday (December 16th), Codie’s hosting an extensive, no-fluff crash course on buying profitable, small businesses.

This live online event will be, by far, our deepest masterclass yet on biz-buying. It’s an incredible half-day opportunity to start learning the ins and outs of small business acquisitions.

Oh yeah, and it’s COMPLETELY FREE — but seats are limited, so if this sounds interesting, learn more and sign up here today.

Today, in 5 minutes or less:

✔️ Ask the buyers: Thoughts on passion vs. profit

✔️ Size matters: How big of a business do you need?

✔️ In the weeds: Navigating deal dynamics in real time…

✔️ 5 links from the week in biz-buying

1. Ask the buyers: Thoughts on passion vs. profit

Navigating the fine line between personal fulfillment and financial viability ain’t easy.

But it can get easier when you’re (quite literally) taking ownership of what you’re working on.

Some of our biz-buying community members recently opened up for a look into how they’re approaching this.

Here are some of the sage, first-hand perspectives Contrarian Community members had to offer, starting with what’s safe to say was the dad-jokiest response of them all:

“I’m passionate about cash-flowing businesses... Easy. Win-win 😆.”

Alright, alright, very funny.

On a more serious note, the member continued, “All joking aside — I’m a passionate person and started out wanting to own/run a brewery but the passion didn’t pay the bills. I found that with a mindset shift towards the end goals any business could be something I love — I want success and a positive culture for my employees. I want a business that helps beautify and enrich the community. As long as it falls into that category I can be passionate about the industry.”

Powerful stuff. Here’s another…

“Passion comes in the doing and you will find passion when you start with the end in mind... Also — one more input is philanthropic work... Being able to give back to any nonprofit or even creating your own.”

Philanthropy is a great motivation. But let’s be honest about that other part, not everyone will be passionate about doing everything.

On that note, another member explained, “I enjoy learning about and optimizing businesses, but there are many businesses I have ZERO interest in owning when I look at them, so I do a gut check, and if I can't find that drive for a business I pass at looking at them. There are plenty of profitable businesses that pass the passion/gut check and those are the ones I focus on.”

So how does this all play out in the real world?

See what this member had to add: “I want to own a business around regenerative medicine & health optimization, so things like spas that do red light therapy, cryotherapy, peptides, hormone optimization, stretching, vo2 max testing, IVs, and all-around biohacking in general. That’s where my passion lies. My barometer is the cash flow and how much. I firmly believe that health optimization will be a trillion-dollar business one day, but at the end of the day, it has to meet my cash flow needs; otherwise, it’ll just be a personal passion until it does. That’s how I try to balance it. Freedom is my ultimate goal, and maybe one day, once I own a small empire, I can own a passion business like this, even if I don’t make money from it.”

As for the original question-asker…

They come with a background in growing early-stage B2B software companies.

“What I found is you’re very subject to venture capitalists and often the company isn’t profitable for a very long time. It’s why [we’re] looking to control our destiny more and buy a cash-flowing business from day one where we can leverage our marketing, team building, and growth backgrounds.”

“Ideally, we find a business that helps people become self-sufficient and better able to support their families. Interestingly enough, that has led us to look at vocational schools and we’re close to an LOI with [multiple].”

2. Size matters: How big of a business do you need to replace your W-2?

Many of our community members are folks who are looking to build a W-2 escape plan.

But, with lots of factors and terminology at play, it’s easy to get lost when building an understanding of what size business they’d need to acquire to replace their 9-5 income…

Our facilitator hopped right in with an example explainer to help crack the code. Note that this example assumes you’d be the operator of the business.

Here’s how it could look:

Step 1: Assume the business generates $200,000 of SDE

Step 2: Assume ~3x valuation of $600,000

Step 3: Assume a 10% down payment, 90% loan at 10 years and 10%, and $5k in closing costs

Step 4: Annual debt service equals $86,424

Step 5: SDE minus debt service = $113,576

More from our facilitator: “I’m ignoring taxes like depreciation of the acquisition and depreciating the loan interest. I’d also likely add in a buffer of at least 25% for any downturn, so let’s say that produces a slightly conservative $85k of SDE ($113.5k less 25%). Also, keep in mind that SDE does not equal cash flow so this is just preliminary to help you figure out what businesses you should even initially consider. You’ll need to understand the actual cash flow to determine if it’s a good fit.”

Oh, our facilitator also added this idea to a list of potential tools and resources we’re hoping to build for our members.

3. In the weeds: navigating one member’s deal dynamics…

One member recently approached the group about a deal they’re eyeing that involves a home service business…

So, why is this deal interesting?

First, according to the member, “This seems like an opportunity to come in as a ‘shareholder’ instead of an owner/operator assuming the ‘key employee’ can be retained.”

Second, the member claimed later on that they have no experience in the business’s specific industry. That’s not necessarily a problem — owners often don’t — but it means this member doesn’t have lots of context while working toward this deal.

“Any input is appreciated, along with ideas around retaining the ‘key employee’ (maybe a revenue share with him to incentivize him to stick around?)”

Take a look at these fascinating responses from members (lightly edited for clarity)…

Member 1: “I like equity share but you could potentially start with revenue share as that helps you retain full equity, while the equity card could be played if that doesn’t seem interesting enough. The experience piece on your part can most likely be learned pretty quickly. I don’t think you should worry about not knowing the industry but rather if the size and location add up then it could be a good fit. It depends on what you are looking for.”

Member 2: “Sounds like an interesting deal! On the key employee aspect, try to get a feel for what motivates them and what type of approach they would prefer. I just signed on our license holder for our upcoming [home service] transaction, and while we were trying to figure out the best way to incentivize him with profit share, bonuses, etc., it turns out that what this guy really wanted was a higher hourly rate…”

Member 2, continued: “I also think that individual needs to be brought into the conversation before close and if you talk through it enough the seller should understand that as well. In the businesses I’ve evaluated so far, some owners have been very open about the sale with their employees and others don’t want to tell anyone until the last minute or the deal is actually done so you’ll have to feel out the seller for the actual timing. For the [home service] business I referenced, the seller didn’t want to loop anyone in until we were sure the deal was going to close and only if necessary / beneficial to the transition.”

5 links from the week in biz-buying:

👔 A good "Day 1 scaries" story about being a new business owner...

🧠 From the father of a home service CEO, some invaluable business and management lessons

🔨 An interesting thread about starting a home service brand differently...

😲 From the same guy, a punchy post about great ideas being right in front of you

🪓 Without a doubt, this is the biz-buying meme of the week

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